2021 (9) TMI 516 - HC - Service Tax

University services including examinations, banking, postal and catering facilities exempt from service tax under Section 66-D

The Madras HC ruled that a university's services including granting affiliation, conducting examinations, and providing campus facilities like banks, post ... Exemption for educational services under the negative list - scope of the mega exemption notification (clause 9 and clause (oa)) - charging of service tax on services not in the negative list - purposive interpretation of exemption provisions - conduct of examination as an educational activity - affiliation and allied activities as part of educational services - renting of immovable property to service-providers as allied educational serviceExemption for educational services under the negative list - scope of the mega exemption notification (clause 9 and clause (oa)) - conduct of examination as an educational activity - purposive interpretation of exemption provisions - charging of service tax on services not in the negative list - Services rendered by the petitioner university in granting affiliation and in conducting examinations fall within exempted educational services and are not liable to service tax for the period in question. - HELD THAT: - The Court held that Clause 'l' of the negative list and the subsequent Mega Exemption Notification (clause 9 and clause (oa) as amplified by Notification No.9/16) must be given a purposive and expansive construction. The exemption covers not only direct teaching to students but also services provided by an educational institution to its students, faculty and staff, and expressly includes services relating to admission and conduct of examinations. Affiliation is integrally linked to admission (since intake and authorization to admit depend on affiliation) and examinations are a primary statutory function of the university; hence the activities of granting affiliation, inspection and conduct of examinations form part of the educational service exempted from service tax. The Advance Ruling Authority's narrow construction treating such university activities as outside the exemption was rejected because it unduly separates the university's role from that of affiliated colleges and ignores the expanded scope conferred by the mega notification and related clarificatory notifications. Applying these provisions to the facts, the Court concluded that the impugned demand for service tax on affiliation and examination-related activities cannot be sustained for the relevant period. [Paras 21, 22, 23, 24, 26]Affirmed that affiliation, inspection and conduct of examinations by the university are exempt educational services and the service tax demand in respect thereof is unsustainable.Scope of the mega exemption notification (clause 9) - renting of immovable property as allied educational service - exemption for services to faculty and staff - Renting of immovable property by the university to banks, post offices, canteens and similar service-providers, when such services are directly beneficial to students, faculty or staff, fall within the expanded exemption and are not liable to service tax for the period in question. - HELD THAT: - The Mega Exemption Notification's clause 9 expressly enumerates services to an educational institution by way of transportation, catering, security, cleaning and services relating to admission or conduct of examination; the Court interpreted this expanded enumeration to cover allied services provided within the campus that enable the educational function. Renting premises to service-providers who render services directly beneficial to the campus community was held to be an allied educational activity within the exemption's scope. Accordingly, demands premised on categorising such rentals as taxable services were held untenable for the relevant period. [Paras 17, 18, 24, 26]Rentals to on-campus service-providers directly serving students, faculty or staff are allied to exempted educational services and the impugned demand on that account cannot be sustained.Final Conclusion: The writ petition is allowed; the assessment and demand contained in the impugned order are set aside insofar as they relate to affiliation, examination-related activities and allied on-campus services of the petitioner university for the period 01.04.2013 to 30.06.2017, and no order as to costs is made. Issues Involved:1. Whether the services rendered by the petitioner university by granting affiliation and its allied activities are exempted services within the meaning of Section 66-D of the Finance Act and the Mega Exemption Notification.2. Whether the services related to renting immovable property for purposes like bank, post office, and canteen are exempted from service tax.Issue-Wise Detailed Analysis:1. Exemption of Affiliation Services:- The petitioner university, established under the Madurai Kamaraj University Act, 1965, functions as an affiliating university, holding examinations and conferring degrees.- The Finance Act, 1994, introduced service tax, which was expanded over time. From 2012, Section 65-B(44) defined 'service,' and Section 66-B imposed a 12% tax on services except those in the negative list under Section 66-D.- Clause (l) of Section 66-D (effective from 01.07.2012 to 13.05.2016) exempted educational services like pre-school to higher secondary education, education as part of a recognized curriculum, and approved vocational courses.- The Mega Exemption Notification (20.06.2012) and subsequent amendments (including Notification No.9/16) further clarified exemptions for educational institutions.- The primary function of the university includes granting affiliations and conducting examinations, integral to imparting education.- The court found that services related to affiliation and examination are part of educational services, exempt from service tax under Section 66-D and the Mega Exemption Notification.- The court rejected the revenue's argument that the university does not directly impart education, emphasizing the expanded meaning of educational services to include faculty and staff services.2. Renting of Immovable Property:- The university provides services like renting space for banks, post offices, and canteens within its campus, which benefit students, faculty, and staff.- Clause 9 of the Mega Exemption Notification includes services provided by educational institutions to their students, faculty, and staff, such as transportation, catering, and housekeeping.- The court held that these services are part of the educational services and thus exempt from service tax.- The court disagreed with the revenue's reliance on the Advance Ruling Authority's narrow interpretation, asserting that the expanded meaning of educational services includes these allied activities.Conclusion:- The court concluded that the entire demand for service tax by the respondent revenue on the petitioner university's services, including affiliation and renting of immovable property, is unlawful and against the statutory provisions.- The impugned order was set aside, and the writ petition was allowed, exempting the petitioner university from service tax for the period in question.